Amazon might find the UK more taxing

The online bookseller Amazon might suddenly find that the UK is more taxing than it would like. A UK judge ruled earlier this month that Amazon had infringed the trademark of soap maker Lush by posting advertisements on Google mentioning "Lush soap" and by offering customers who searched for "Lush soap" on its own website a list of options.

Lush was not available on Amazon's UK website because the manufacturer did not want to sell it there. The judge ruled customers could be confused because they could go to Amazon looking for coconut soap which looks like sweeties and not find it. Amazon attempted to get out of the case with some footwork claiming that only its main European operating subsidiary, Luxembourg-based Amazon EU and not the group's UK subsidiary, Amazon.co.uk should be a defendant.

Amazon EU ran the UK business from Luxembourg, and that the British subsidiary simply provided services such as warehousing to the Amazon group. What is important is that by the Judge disagreeing, he opened the way for Amazon to be forced to pay tax in the UK. The somewhat silly Luxembourg argument is the basis of Amazon's claim that its retail business doesn't have a tax residence in Britain and that therefore, all revenues and profits should be declared in low-tax Luxembourg.

However, the Judge pointed out that Amazon's depiction of the role of the UK unit was "wholly unreal and divorced from the commercial reality of the situation.” While it might not force Amazon to pay tax straight away, the ruling could encourage the tax authority, Her Majesty's Revenue and Customs, to take a closer look at Amazon's structure.

If Amazon's arguments were not accepted by the court, it could mean that HMRC might look more critically at what Amazon has been saying.